It looks as though Ken Kutaragi was right when he stated
that the PS3, which will be priced at $499 and $599 respectively in the United
States, is probably "too cheap."
According to a new cost analysis by iSuppli, Sony will lose $307 for every 20GB
PS3 it sells and $241 for each 60GB version. "With Sony taking a
smaller loss on the higher-end model, it's not a surprise the company is
steering customers to the 60Gbyte version," said iSuppli. For the United
States, 20GB PS3s will account for 20% of the sales mix
while the 60GB versions will take the remaining 80%.

Although its initial losses with the PS3 will be large, Sony
co-chief operating officer Jack Tretton points out that the original PS and the
PS2 became "incredibly" profitable after taking massive losses at
launch.

iSuppli summed up it results
by stating “While many fret over the high cost and price of the PlayStation 3
compared to the competition, iSuppli believes the console provides more processing
power and capability than any consumer electronics device in history. Because
of this, the PlayStation 3 is a great bargain, well worth its $599 price and
$840.35 cost, iSuppli believes."

Microsoft, which was once seeing red to the tune of $153
per unit sold, is now making a profit of $75.70 on each console before
marketing and distribution costs a year after launch.

You gotta figure that if they are losing close to $300 per PS3, that even when they start getting some good games out it will take them awhile to break even. Becuase maybe sometime next year they will get $20 per system but they will still be out some $60 million that they have to make back in games....seems to me like Sony had a rough time coming out with the PS3

The old bogeyman is out to get you routine again? Seriously, how many times have places whether it's a magazine, traditional news site, blog site, etc get accused of bias? 95% of the time, these places are only reporting the news or giving their opinions if it's an opinion editorial piece. Even the Official Playstation Magazine thought the $500-600 price of the PS3 overly expensive and their a vehicle for pro-Playstation propaganda.

Take EGM. I know they are on the fanboyish side in regards to video games and many feel their reviews are not strict enough but over the course of years, they've been accused of being pro and anti Nintendo, pro and anti Sega, pro and anti Sony and who knows what else. It never occurs to the fanboys that maybe, just maybe, these guys are only saying what's on their mind and reporting what news they find. Just as Dailytech is.

Regardless of the ebay reselling, the ps3 without games, when in the hands of the end-user-gamer will actually get played with ie likely one ps3 game (aside from any backcatalogue of ps2 content the owner has).

Sooner or later the owner will be curious about a new great title (in 2007 when volumes are up enough to justify release to market) so will then have at least another ps3 title.

Yes they make greater margins on software than hardware.

They will also make a few online download sales.

However, the big factor is the bluray.

What is it worth to Sony for that?

Well it is worth some $ per movie disk sold to a ps3 user.

BUT it is ALSO worth something to have their format beat hdhvd in the installed userbase race and win the format war.

Therefore, Sony could virtually give their ps3 away if it guaranteed they would own the market for movie media and be a significant studio seller of movies on that media.

The isuppli analysis likely does not include (small) retail margin, differences between the 3 global markets, import duties, sales taxes etc, nor the cost of the infrastructure to run the online gaming, but they are right that currently it's a net loss.

I'd agree that costs will come down over time (and maybe we see a selling price reduction too).

But taking into account the BR format and games sales (yes even sales of ps2 titles to run on ps3) they will make money.

Now the other question is value proposition for customer:

It's more expensive than x360, but I'm getting linux ability, HDMI output (you may not have a screen but in 3 years you may), bluray player, and the ability to self-swap to a bigger hard drive (large hard drives will reduce in price making this even more attractive) whilst the x360 is stuck with small size and I can't upgrade it with permission.

So, on the whole I agree with isuppli that the ps3 represents good value to the consumer, even at this launch price.